Mar. 24, 2005 – Although the Bush administration predictably used yesterdayâ€™s release of an annual report on Social Security to push for reform, critics of the presidentâ€™s plans for privatization read the new numbers quite differently. The figures put out by the programâ€™s trustees suggest Social Security will begin partially defaulting on benefits in the year 2041, which some analysts say proves that Social Security is hardly in an immediate crisis and does not require drastic measures to be shored up for the foreseeable future. Additionally, some criticized the administration for proposing a privatization scheme that will contribute to rather than remedy the programâ€™s deficits.
"This new report shows almost no change in Social Securityâ€™s long-term finances, and thereâ€™s no reason to change our view that private accounts make whatever problem there is worse," said Jason Furman, a senior fellow at the Center on Budget and Policy Priorities, a progressive think-tank focusing on economic and public policy affecting low- and moderate-income families and individuals.
The trusteesâ€™ annual report projects that at current rates, in the year 2017, the government will begin paying out in Social Security benefits more than it derives from payroll taxes. At that point, the government will have to begin supplementing the programâ€™s deficit with money from the Social Security trust fund. The trustees forecast that the fund will make up for the revenue shortfalls for slightly more than two decades, but will run out in 2041. After the trust fund runs out, the government will only be able to pay 74 percent of the benefits it expects to owe to the retired and disabled because it will be relying on payroll withholdings.
The president is currently on an unrelenting campaign to convince the country that the program is in crisis and needs to be remedied by partial privatization.
The trusteesâ€™ outlook is a fraction more pessimistic than last yearâ€™s report, which projected the date the trust fund would run out at 2042. It is also conservative compared to the predictions from the Congressional Budget Office, which projects that the system could pay full benefits until 2052.
The president is currently on an unrelenting campaign to convince the country that the program is in crisis and needs to be remedied by partial privatization and tax-funded personal retirement accounts. He did not personally react to the new numbers yesterday, as he was meeting with Canadian Prime Minister Paul Martin and Mexican President Vicente Fox.
But Treasury Secretary John Snow, a Bush appointee and one of the Social Security trustees, told reporters: "The reason we are dealing with Social Security now is that it cries out for answersâ€¦ The numbers published today leave no question that Social Security reform is needed, and it is needed soon." Three of the other trustees -- Elaine Chao and Michael Leavitt, and Jo Anne B. Barnhart -- are members of the Bush administration. Two trustees appointed by former-president Clinton complete the six-person board.
Critics of the privatization scheme have succeeded in undermining the presidentâ€™s claims that allowing workers to divert some of their payroll withholdings into personal retirement accounts will â€œfixâ€ the programâ€™s deficits.
The president has made Social Security reform a top priority for his second term, with a plan to reinvest some tax-derived revenues into the private sector forming the core of his proposal. But it has been a hard sell for the administration, which has failed to convince most Americans that the system faces an immediate crisis.
Critics of the privatization scheme have also succeeded in undermining the presidentâ€™s claims that allowing workers to divert some of their payroll withholdings into personal retirement accounts will "fix" the programâ€™s deficits. Instead, the administration has been forced to hock its "personal accounts" idea as an extra perk, not as a viable solution for returning the system to full solvency.
"I've got an idea that I think the American people ought to seriously consider," Bush told a crowd in Albuquerque, New Mexico Tuesday, "and that is younger workers ought to be allowed to set aside some of their own money in a personal savings account as a part of the Social Security system; not the way to fix the system -- it's going to require other matters to fix the system -- but as a way to make the system better for the individual worker."
Yet critics of the administrationâ€™s Social Security plans say the presidentâ€™s private accounts plan will only add to the systemâ€™s long term deficit, since money placed in such accounts today will actually remove money from the system depended on by current retirees and other recipients. Those critics suggest that if he wants to fix the program, Bush should find ways to increase the revenues.
"The program faces a significant long-term funding shortfall that must be addressed, but it is not in the midst of a deep structural crisis that requires drastic changes," wrote the Center on Budget and Policy Prioritiesâ€™ Furman in an analysis of the trusteesâ€™ report co-authored with the Centerâ€™s executive director, Robert Greenstein. Before working at the Center, Furman and Greenstein served as economic advisors for the Clinton administration.
"[T]he President's private accounts would do nothing to close the shortfall," they added. "In fact, because the President's proposal would shift large amounts of revenue out of Social Security, it would cause the trust fund to become exhausted about 11 years sooner, in 2030..."
Alternative options for changing the long-term outlook for Social Security abound. Raising the cap on wages that can be taxed for Social Security has increasingly become a popular proposal, and even Bush says he has not ruled it out. Currently, only the first $90,000 of each personâ€™s income is subject to Social Security taxes, and progressive economists say raising that number would go a long way toward putting the program on the road toward total self-sufficiency.
"The problem is that the president needs to decide whether heâ€™s more interested in private accounts or more interested in saving Social Security," Furman told The NewStandard in an interview. "Right now, he seems more interested in private accounts, and heâ€™s going to have a hard time getting it through this year when people are increasingly focused on Social Security solvency problems and trying to understand what we can do to make that better, not what we can do to set up private accounts."